On 19 January 2018, the First-tier Tribunal held9 that the resources of a UK insurance broker did not constitute a “fixed establishment” for VAT purposes in the UK of a non-EU insurer. As a result, the UK broker was entitled to recover input tax attributable to the supplies it provided to the non-EU insurer.
The UK broker (Broker), a company incorporated in England and Wales, provided broking, underwriting and claims handling services to a Gibraltar-incorporated insurance company (Insurer). The Insurer made supplies of insurance, via the Broker, to UK customers. The Broker received a commission from the Insurer and, crucially:
• the Broker set the gross premium payable by UK customers (the Broker’s commission being the difference between this gross premium and the net premium payable to (and set by) the Insurer)
• the contracts between the Broker and Insurer were on arm’s length terms
• the Insurer decided which risks to insure
• the Broker could reject, settle and pay claims up to a maximum amount per claim
• the Broker acted for other insurers, had autonomy to decide on its staffing numbers, and owned its website, call centres, computer and software systems and customer databases.
The Broker, relying on the rule that input tax can be recovered if attributable to insurance services supplied to non-EU10 customers, sought to recover input tax attributable to its supplies to the Insurer on the basis that the supplies were made outside of the EU. HMRC’s view was that the Broker’s supplies were made to a UK fixed establishment of the Insurer, by virtue of the fact that the Broker’s human and technical resources constituted such an establishment, with the result that the input tax was not recoverable.
In a lengthy decision, the Tribunal held that the Insurer did not have a UK fixed establishment and that, even if it did, the Broker’s supplies should nevertheless correctly be viewed as being supplied to the Insurer’s business establishment outside of the EU (in Gibraltar). The Broker was therefore, in the Tribunal’s view, entitled to recover its input tax attributable to its supplies to the Insurer.
In reaching its decision that there was no UK fixed establishment of the Insurer on the facts, the Tribunal noted that each of the Broker and the Insurer operated separate businesses, each with their own commercial aims (so that the Broker acted independently, albeit within commercially agreed limits).
The case can be viewed here.